China's purchase of US company a sign of the times

A Chinese government company will acquire a direct stake in the US economy today by purchasing a bankrupt Florida battery maker, the start of what may be a wave of investment by one of the WTO's newest members.

The Huayi Group, a state-owned manufacturer of batteries and electric bicycles, is paying US$20 million for Moltech Power Systems Inc, and will operate the company as a wholly owned subsidiary, according to Martin Higgins, Moltech's chief executive officer.

"This shows that it's possible, and I wouldn't be surprised to see a lot more investment like this," he said in an interview from his office in Gainesville. Moltech, which sought Chapter 11 protection in May 2001, will compete with Gillette Co, Energizer Holdings Inc and Rayovac Corp.

When China joined the WTO in December, most analysts and officials expected the country's acceptance of market-opening rules to spur US investment in the world's most populous country. That China also was emboldened shouldn't be surprising, the former top trade official for the US said.

"This is a natural outgrowth of China's economic development and integration into the world system," said Charlene Barshefsky, who when she was US Trade Representative negotiated the US-China accord that paved the way for WTO accession. "This deal won't be the last."

China's companies account for more than 80 percent of the country's gross domestic product, and the government holds more than US$250 billion in foreign currency reserves, providing the means for overseas ventures.

He Weiwin, economic and commercial counselor at the Chinese Consulate in New York, said today's groundbreaking deal is a sign of things to come, and reflects market pressures on state-owned companies in the wake of China's WTO accession.

"This is a natural extension of business, it is not a government function," he said. "This is part of the companies' natural development, because they need to extend their product line, get into new markets and integrate."

He said that while the Huayi purchase is the first he knows of a Chinese company buying a US one, more will follow.

"There have been many cases of US companies purchasing Chinese companies, so this is the other way around, maybe unexpected," he said. "I expect there will be many more such deals in the future."

Robert Kapp, president of the US-China Business Council, which represents US companies such as Boeing Co, Motorola Inc.

and American International Group doing business in China, agreed it's the wave of the future.

"We will see more of this with the emergence of Chinese corporate entities away from the government ministries with which they have historically been associated and from which they sprang into the market," Kapp said.

Eric Li, chairman of San Francisco-based Business Data Integrated Inc, which advised Huayi on its takeover of Moltech, said the purchase plays to the strengths of both companies.

"It combines the technical expertise of the US company with the capital and market potential of China and the rest of Asia," he said in an interview in Beijing.

The purchase shows the potential benefit for both Chinese investors and US recipients, Higgins said.

Moltech Florida will have access to low-cost steel, nickel and cadmium from China, giving the company's rechargeable batteries a price advantage in North America. Moltech supplies manufacturers like the US subsidiary of Japanese power toolmaker Makita Corp, and Mag Instrument Inc, maker of Mag lite brand flashlights.

In exchange, Higgins said, Moltech will ship some of its advanced manufacturing technology to China. Huayi will set up a plant in Shanghai to provide batteries for the Chinese domestic market, including Huayi's electric bicycles.

"There are some incredible subtleties at work here, and we're getting to pick and choose where we apply the advantages," he said. "The Shanghai operation gets some very capable equipment and know-how at a good price; we get access to Chinese materials, which helps us be competitive in North America."

Huayi's million investment is likely to lead Moltech to triple annual sales over the next three years from US$50 million currently, Higgins said. It will also create more than 2,000 jobs in Florida, China and Juarez, Mexico, where Moltech sends its US-made batteries duty-free to be packaged under the terms of the 1994 North American Free Trade Agreement.

With the acquisition, Huayi, which started making alkaline dry cell batteries in China in the 1930s, will become one of the world's four biggest manufacturers of rechargeable batteries, capable of making about 240 million batteries a year, Li said.

Gillette's Duracell is the largest rechargeable battery maker, followed by Energizer and Rayovac.

WTO has helped open China's eyes to possibilities that have always been there, Barshefsky said.

"This is a function of China's development and its desire to do what nations and companies around the world all do: move capital to where it is the most productive," Barshefsky said.